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Softbank will pay $12.1 billion to Sprint shareholders and the deal includes $8 billion of new capital, according to a statement today. The deal would be the biggest publicly announced outbound acquisition by a Japanese company since at least 2000, according to data compiled by Bloomberg.

Entering the U.S. allows billionaire Masayoshi Son, Softbank’s president, to participate in a market that’s still growing in contrast to Japan, where handset shipments tumbled 27 percent during the past five years. Sprint can fund a faster expansion of its 4G wireless network, pay down debt or make more acquisitions aimed at challenging bigger competitors Verizon Wireless and AT&T Inc.

“It’s not an easy path to go,” said Son, speaking at a press conference in Tokyo. “But without taking on a challenge, we may end up facing bigger risks.”

Softbank is creating U.S. holding entities to make the acquisition. About 55 percent of Sprint shares will get $7.30 in cash, and the rest will convert into 30 percent of a newly capitalized company, which will include the $8 billion cash infusion, Sprint said in a presentation to investors. SoftBank will also receive a warrant to purchase 55 million additional Sprint shares at an exercise price of $5.25 per share.

No Better Time

“It could not be a better time to get this investment of capital,” Sprint Chief Executive Officer Dan Hesse said during a press conference in Tokyo.

Sprint, based in Overland Park, Kansas, was little changed at $5.74 at 10:47 a.m. in New York. AT&T, based in Dallas, declined 1.4 percent to $35.12, while Verizon dropped 0.7 percent.

Son is pursuing an acquisition strategy that counts on smartphone users migrating to faster wireless networks to surf the Web and download videos and music. Softbank is looking to ride the fastest growth in mobile communications since 3G started rolling out a decade ago.

LTE subscriptions quadrupled this year to 73 million and are expected to reach 1.2 billion by 2016, according to projections from IHS iSuppli. Some of the world’s largest handset makers -- Apple, Samsung Electronics Co. and HTC Corp. - - support the technology.

Softbank shares fell 5.3 percent to 2,268 yen in Tokyo today, extending the record 17 percent plunge on Oct. 12. Son controls 20.92 percent of the mobile-phone operator, which was the first to offer Apple Inc.’s iPhone in Japan.

‘Big Challenge’

“Softbank has a very big challenge ahead of it,” said Mitsushige Akino, who oversees the equivalent of about $600 million in assets at Ichiyoshi Investment Management Co. in Tokyo, said today. “Investors need more explanation regarding their strategy for future growth.”

The deal will be funded by cash on hand and bridge financing. Softbank had $9.5 billion in cash and near cash items at the end of June, according to data compiled by Bloomberg. The company hired Mizuho Corporate Bank, Sumitomo Mitsui Banking, Bank of Tokyo-Mitsubishi UFJ and Deutsche Bank’s Tokyo branch as lead arrangers. Citigroup Inc., Rothschild and UBS AG advised Sprint.

Sprint must pay Softbank a termination fee of $600 million if it accepts a superior offer by another party. The U.S. carrier will also pay as much as $75 million of Softbank expenses if its shareholders reject the transaction.

World No. 3

The combined entity of Sprint and Softbank will create the world’s third-largest mobile-phone services provider by revenue, Son said. Softbank group will have 96 million users after the transaction, he said.

Sprint Chief Executive Officer Dan Hesse will retain the position after the deal. The boards of both companies have both approved the deal, which is expected to close by mid-2013, according to the statement.

“This could be the final and most important piece to reposition Sprint to compete effectively with AT&T and Verizon,” Walt Piecyk, an analyst with BTIG LLC in New York, said before the deal was announced.

Sprint bonds rose after the deal was announced. The $2.48 billion of 6.875 percent debt maturing in 2028 gained 5.25 cents to 107 cents on the dollar, yielding 6.18 percent at 9:19 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds earlier touched 108 cents, the highest since March 2006.

Son’s Ambitions

Son’s ambitions made him Japan’s second-richest man, with a fortune estimated at $7.3 billion, according to the Bloomberg Billionaires Index. He owns stakes in Yahoo Japan Corp., Alibaba Group Holding Ltd. and Zynga Inc., and in his biggest deal bought Vodafone Group Plc’s mobile-phone business in Japan in 2006.

Son has said he wants to raise Softbank’s market value to 200 trillion yen ($2.5 trillion) by 2040, compared with about 2.5 trillion yen today.

Hesse, who turns 59 this week, has been working to fix the situation he inherited five years ago after the $36 billion purchase of Nextel.

Complaints About Quality

During Hesse’s tenure, 7.7 million contract customers left Sprint after a struggle to integrate the two companies led to complaints about network quality. Sprint ended up writing off about $30 billion, or 80 percent of the purchase price.

“The transaction will probably add a financial burden to Softbank because Sprint is a company that has been losing money,” Tomoaki Kawasaki, a Tokyo-based analyst at Iwai Cosmo Securities, said before the deal was announced. “That’s a concern in the short term.”

Softbank’s Baa3 rating may be downgraded because of the additional debt the company is taking on, Moody’s Japan K.K. said in a statement. A downgrade would cut Softbank’s rating to junk.

The extra yield investors demanded to hold Softbank’s 0.732 percent bond due Sept. 22, 2017, rose 54 basis points to 186.6 basis points today, according to the Japan Securities Dealers Association. The spread more than doubled on Oct. 12, the day after reports Softbank was in talks with Sprint, to 132.6 basis points.

MetroPCS, Clearwire

Sprint may seek to bid for MetroPCS Communications Inc. or purchase the rest of Clearwire Corp., people familiar with the matter have said. The company started offering its service on a faster network using the Long Term Evolution, or LTE, technology in five cities in July, with plans to add more this year to catch up with its larger competitors.

Sprint holds 48 percent of Bellevue, Washington-based Clearwire and has an equal percentage of voting power, Mike DiGioia, a spokesman for Clearwire, said Oct. 11. Shares of Clearwire jumped as much as 28 percent today after gaining 78 percent in the last two trading days of last week.

Deutsche Telekom AG, Germany’s largest phone company, agreed Oct. 3 to combine T-Mobile USA with MetroPCS after it failed last year to sell the business to AT&T amid opposition from regulators.

Clearwire’s spectrum is probably a key component and an attractive asset for Softbank, Piecyk said.

Sprint trails Verizon Wireless, which has LTE service in about 340 markets after starting its upgrades a year earlier.

Softbank, the fastest-growing Japanese mobile-phone provider, boosted earnings by more than sevenfold during the past four years with the popularity of the iPhone.

Closing the Gap

That helped it close the gap with larger NTT DoCoMo Inc. and KDDI Corp. AT&T was first to offer the iPhone in the U.S., with Verizon and Sprint adding it later.

Mobile-handset sales in the U.S. increased to 191 million units last year from 182 million units in 2007, according to data compiled by IDC. In contrast, handset shipments declined to 38 million units in Japan last year from 52 million in 2007, according to IDC.

In his 300-year plan announced in 2010, Son, 55, laid out a Darwinian comparison of business to living species and forecast that 99.98 percent of companies would cease to exist in their current form during the next 30 years. He vowed Tokyo-based Softbank would survive.

“Even with the energy of Mr. Son, it won’t be so easy to succeed in the U.S. telecom business,” said Yuuki Sakurai, president of Fukoku Capital Management Inc., which manages 1.5 trillion yen of assets in Tokyo. “There are concerns whether Softbank can really control its diversified businesses going forward.”

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